Pender's Blog

Avistar's Tale: Microsoft Shows Its Dark Side

Many have the times been here at RCPU that we've defended Microsoft -- in the
EU antitrust cases, in certain disputes with other vendors and against the more
communist element of the open source movement.

But this is just nasty.

Avistar
Communications is going through a rough time. That's probably the first
thing that we should understand here. Avistar makes videoconferencing software
with a specialty in enterprise desktop video, and its new CEO, an affable Brit
named Simon Moss, sees his company's wares as a great fit for the cresting wave
of unified communications (UC) platforms.

For now, though, times are tough financially. Avistar just this month regained
compliance with Nasdaq listing standards after falling out with the market
for failing to meet a minimum market value for listed securities. The company
just reported a third straight fiscal year with a net loss -- although a much
smaller one than the one it gushed
in 2006.

But all hope wasn't lost for Moss when he took over as CEO on Jan. 1. Avistar
has, after all, a litany of patents that can and do help generate revenue; suffice
it to say that intellectual property (IP), something so sacrosanct to Microsoft
when it was swatting at the EU and other antitrust mosquitoes, is the lifeblood
of Avistar. Avistar's no patent squatter -- it's been producing software for
years -- but IP is a huge component of what makes the company viable. That's
what makes this story so disappointing...but we're getting ahead of ourselves.

Hoping to cash in on Microsoft's ambitious, software-centric UC platform, Avistar
opened up discussions with the software titan about Redmond potentially licensing
some of Avistar's IP and using it in Microsoft UC wares.

"Microsoft is one of the major players in the UC space," Tony Rodde,
president of Avistar's IP division, told RCPU recently. "We went to them
with discussions on our portfolio and possibly collaborations therein. They've
been very professional, non-threatening discussions."

Well, they were for a while, anyway. Until Microsoft suddenly decided to ask
the U.S. Patent Office to reexamine 29 of Avistar's patents -- including some
that date back to 1993. Avistar has been in patent battles before; it settled
disputes that it started with both Polycom and Tandberg, both of which now license
Avistar's technology. Moss is confident that Avistar's patents will withstand
reexamination, and he's talking tough about going up against Redmond.

"We're going to be able to fight it as long as we need to," Moss
told RCPU. "It will be a war of attrition if it goes on, but the company
will persevere."

The war, however, is already proving costly. Avistar announced last week that
it's letting go a whopping 25 percent of its workforce, primarily, it says,
because of Microsoft's action. Moss is blunt about his company's prospects:
"It's going to cost us a lot of money. Truly, this was an action that hurt
us."

And it's an action that, Avistar says, came out of the blue. One day, the company's
in talks about Microsoft licensing its technology, and the next, Microsoft is
-- in RCPU's view, not in Avistar's -- trying to put it out of business and
fleece its IP.

"Some of the patents that have gone into reexam have nothing to do with
Microsoft's strategy or portfolio," Moss said. (Well, not yet, anyway,
RCPU says.) He adds that the reexamination of 29 patents would represent 5 percent
of the total number of patents reexamined in the U.S. (600) all of last year.

Added Rodde, "What we felt was that we had a basis for having a very in-depth
licensing discussion whereas they would be licensing our technology. Those discussions
[with MS] turned into putting our patents into reexam. There was no intent to
cut the discussions off. That's why it was such a surprise to us. The [law]
firm that does our patents -- they believe this is an unprecedented action."

Now seems as good a time as any to drop in the obligatory Microsoft statement
-- since nobody in Redmond would actually talk to us about this story -- on
the Avistar patent move. It came via e-mail from Microsoft's PR firm, attributed
to Michael Marinello, director of public relations at Microsoft:

"We have asked the U.S. patent office to take another look at Avistar's
patents in light of prior art which was not considered in the original examination
of the patents. Any discussions that may be going on between the parties are
confidential and not something we are at liberty to discuss."

Whatever. Sorry, Microsoft, but you're not looking too good in this scenario.
This is the dark side of Microsoft, the side we've
told you about in the magazine, the side that brings out the critics and
the haters and the antitrust hounds. This is Microsoft trying to prey on a struggling
company that happens to have some attractive IP and litigate that company into
oblivion before draining its lifeblood.

There's free-market capitalism, and then there's predatory business practices.
Sometimes it can be difficult to distinguish between the two, but this falls
into the latter category, as far as we can tell. And while we know that Microsoft
(along with lots of other big vendors -- most others, really) is no stranger
to that sort of thing, it doesn't make it any less disturbing.

Moss said that some of the anti-Microsoft brigade has come to his aid, but
mostly with moral support. "We're in a bar; some guy's hitting us with
a baseball bat, and they're all going, 'Come on, Simon! Hit him back!'"
Moss said of some of his company's well-meaning allies. "That's about it.
I've got nothing but an ice cream cone."

The funny thing is that Moss and Rodde still want to partner with Microsoft,
and they're trying to put the best face on things. Moss doesn't see Microsoft's
action as an example of a big vendor trying to cripple a smaller player (although
he does admit that a "cynical person" might see things that way),
and he's still trying to look at Redmond in a positive light.

"We're being pushed by many people in the market saying, 'This is typical
Microsoft; this is what they do,'" Moss said. "I don't think it's
necessarily them. We were on this [UC] just as the Internet bubble was starting.
Now all of a sudden this market's blowing up. Now's the time that Avistar can
really begin to flourish. We hope that the partnership and distribution agreements
we were talking about can be revitalized."

Hopefully. But frankly, at RCPU, we have our doubts.

Do you have a Microsoft nightmare story to share? Or are we being too hard
on Redmond here? Express yourself at lpender@rcpmag.com.